Skip to main content

Now its nice to have a small and local bond market!

The past few days in Europe have been amazing.  It is hard to figure out what's the game!  There is a demonstrable liquidity crisis in Europe, with French bonds price falling (as interest rates rise), and even Finland bond price falling -- consider that Finland is the ONLY Maastricht  compliant country... Yet the ECB stands on the sideline waiting for something or someone.  

The latest realpolitik "plot" is that the ECB is at the center of a fight between France and Germany, where France doesn't want the leveraged EFSF program installed (It would kill its AAA rating), and is trying to push Germany to act more unilaterally, while Germany (aka Angela Merkel) wants a more tightly wound Europe (read common fiscal policy with a parliament that has a right of veto on national budget).  

The assumption here is that Merkel has an "evil plan" where she kills democracy (it is certainly the Daily Telegraph's contention -- see Abrose Evans-Pritchard latest missive here.  But the Daily Telegraph is rabidly anti-Europe and assumes a degree of cunning from the Germans and French that has been largely absent so far from the European stabilization exercise of the past 24 months.  However, it is possible that Germany only see's a future for Europe if there tighter fiscal integration -- the implication is less local democracy, but for serious economist this was always a given if the monetary union was to function.

Looking at this as a Canadian, where the bond market is about as domestic as it can be, yes there are foreign buyers of treasury bills (the short end of the curve) but the treasury bond market is a largely Canadian affair.   Moreover, Canadian institutions are already in compliance with Basel III (well at least as it relates to capitalization -- the other bits will take some time), so there is no need for them to liquidate anything.  I am certain that most Canadian investors would look favorably at certain European sovereign bonds -- if the can isolate the currency risk -- because the Euro is seriously overvalued, a consequence of European institutions repatriating funds to Europe (hence driving up the demand for Euros).  

The Canadian bond market is a bit like Japan, a largely "domestic" affair, so as a rule Canada's institutions are looking at the whole European mess (and watch out next week for the U.S. after the "failure" of the Super-committee) and hoping that we can insulate our bond market and financial institutions from the mess in Europe.


Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…